In the wake of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the United States has conferred an additional $310 billion funding to the Paycheck Protection Program (PPP) that was almost running out of funds in April. The importance of PPP is ever-important in these times of economic uncertainty as PPP is one of the few opportunities that small businesses have to obtain forgivable loans to sustain employees on the Payroll.
But, there are so many questions that are yet to be answered and cleared for entrepreneurs, especially in the light of the forgivable nature of the PPP loans.
Another burning issue here is the grey area, where many public companies confessed to having taken the PPP loan which was truly meant for small businesses with employees less than 500.
To contain such malpractices, the federal government has come out with the briefing that the authorities will audit any company that levies for loans more than $ 2 Million.
This blog will provide answers to all the commonly asked questions and queries related to the PPP loan and how it can benefit your business.
Question 1: What costs are eligible for forgiveness under the PPP?
Answer: The actual forgivable part of the PPP is dependent on certain factors. These are based on the payments made and the costs incurred during the COVID-19. These are the costs that are eligible for forgiveness in the PPP loans:
- Salary and wages or other similar payroll compensations.
- Payments that have been made in the light of sick leaves.
- Allowance for separation.
- Payments made for group health care benefits, including insurance premiums.
- Retirement benefits
- State or federal payroll taxes
- Please note that cash compensations that exceed $100,000 are exempted from this excuse. Additionally, the employer’s share of the federal payroll taxes is also exempted from being forgiven under the PPP.
Question 2: What costs are not eligible for forgiveness under the PPP?
Answer: Although the PPP loan is a breath of fresh air for businesses who are trying hard to genuinely retain their employees, there are still certain costs that are exempt from being forgiven under the PPP loan. These are:
- Payments made to independent contractors.
- Under the Family First Coronavirus Response Act, there are qualified sick leaves and parental leave wages. These, therefore, are exempt from the forgiveness under the PPP.
- If we take February 15, 2020, as the benchmark date; then any interest payments on personal property, rent payments under agreements in existence, and utility payments like electricity bills, etc. are also not permitted for forgiveness under the PPP loan.
You May Also Read – 10 Ways Your Bookkeeper Can Help You Through Covid-19
Question 3: What are the limitations of loan forgiveness?
Answer: There certainly are limits to forgiveness in the PPP loans. The first is that not more than 25% of the loan forgiveness can be linked to non-payroll costs. Additionally, proceeds directed towards advance up to $10,000 on Economic Injury Disaster Loan will also be deducted from the loan forgiveness amount.
There are two formulas to determine the forgiveness amount in the loan deduction. The FTE Method and the reduction in wages.
The loan forgiveness amount is subject to reduction by multiplying it by the following fraction. These are as follows: (This is known as the FTE method)
- The numerator of which is the average number of FTE employees per month employed by the borrower during the covered period.
- The denomination of which, as elected by the borrower is:
- The average number of FTE employees per month (from Feb 15, 2019, to June 30, 2019)
- The average number of FTE employees per month (Jan 1, 2020, to Feb 29, 2020)
The second is the reduction of wages method. This method is applicable as follows:
- Identify employees who did not receive the salary at an annualized rate of more than $ 100,000 for a single day in 2019.
- Compare each covered employee’s wages during the period to his/her salary during the first quarter of 2020.
- For an employee who is covered, the salary is reduced by more than 25%, then you need to apply the following formula:
- Multiply the first-quarter wages by .75
- Subtract the result from the covered period wages
- The aggregated dollar amount will reduce the loan forgiveness amount.
Question 4: What are the documents that you need to apply for forgiveness?
Answer: To receive the loan forgiveness, you need to comprehensively submit accurate copies of the following documents, complete and updated:
- Documentation to verify the number of FTE employees on the payroll. This also includes the payroll tax filings.
- Canceled checks, payment receipts, and transcripts of accounts verifying payments of mortgages, rent and utility payments.
- You also need to submit an authentication certificate from a representative of the business that certifies that the information and documents submitted are accurate and the amount that is requested for forgiveness, will help retain employees.
- In addition to these, the SBA can also ask you to submit additional documents to solidify and authenticate your case.
Question 5: Are large businesses with adequate sources of liquidity qualify for a PPP loan?
Answer: No, the essence of PPP loans was to help small businesses, retain employees, and sail through these financially crunching times of COVID-19 smoothly. If larger businesses, who have enough sources of liquidity take this PPP loan, then the small businesses will be crushed under undue competition. Hence, as per the federal laws, for any business that takes up a loan above $ 2 Million dollars, will have to undergo a complete audit.
What Does Your Business Need?
The essential element in COVID-19 is to sail through with as little damage as possible. With the PPP loan and the secure ability to seek forgiveness on the loan is a boon in these times. You need to seek spaces where you can seek the maximum benefits and forgiveness on the PPP loans. We hope that your essential queries were answered and cleared through this blog. For any additional query and query on the PPP loans and how it affects your business, please click here.
Organizing and streamlining your business operations and logistics is the ultimate goal of every business. Outsourcing bookkeeping and accounting tasks are one such way to efficiently run your business. The financial professionals assist you in handling your financial records and finance-related concerns. These industry experts are a team of highly accredited and trained professionals. They help you in running your business better by taking away these tasks off your hand so that you can get more time to run your business and generate better profits.
There are various advantages of outsourcing your bookkeeping activities, like saving overhead employment charges and additional costs. These hard to pass up advantages have made businesses largely take the plunge.
But, then there are some businesses that still are not completely sold on the idea of giving the reins of their financial operations in the hands of a third party.
Charting out a complete list of the pros and cons of outsourcing bookkeeping operations of a business can help you make the decision better.
Pros of Outsourcing Bookkeeping for Your Business:
More than one-third of businesses, outsource their accounting operations to professionals and more are predicted to do so in the year 2020. Here are some of the advantages that your business can benefit from, by outsourcing your bookkeeping activities.
When you outsource your business financials to a professional team of bookkeepers, you are able to save on overhead charges of hiring an in-house team. Add to that, you are able to reduce costs on additional office space, rent, employment taxes, and the opportunity costs coming with them. Outsourcing bookkeeping tasks helps you save on 79% of salaries. You also get to majorly save on time spent on undertaking bookkeeping tasks. Averagely, a businessman spends 4 hours every week on bookkeeping tasks. When you outsource this, you can use the time saved on taking care of other aspects of your business.
Get Experts and Their Valuable Knowledge on Your Team:
With industry experts and leading professionals on your side, you will get error-free, accurate, and compliant filings. They are not just your bookkeepers, but your team of financial advisors who help you maximize your savings and enhance your financial health. They help you gain the maximum tax benefits by strategizing your finances right from the start and help you make benefitting decisions for your business.
When you outsource your accounting to professionals, they make sure that you are tax compliant, a step ahead with your financial planning, and maintain an error-free record of your receivables and payables. When your financial health is in the hand of professionals, you can rest assured about your business’ profitability and success. After all, the beginning of any successful enterprise is always in the efficiency of how well its blueprint is laid down!
With outsourced bookkeepers, you greatly reduce the potential mishandling of your books, sudden frauds and get better control over your finances. By taking it out of the hands of an in-house team and giving it to professionals, your books are updated, error-free, and out of the hands of potential security threats. They make sure that your books are balanced and all the dealings are done in a transparent manner. So that you continue to be the key decision-maker of your business.
Allocate Resources for Further Expansion:
The time and money you save on bookkeeping activities can be used to take care of the expansion and efficient running of your operations. Every mid and small-sized business needs to have a dynamic schedule and efficient logistics to be able to become better with time. By outsourcing your bookkeeping activities to professionals, you can use the time saved to enhance your business.
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Cons of Outsourcing Bookkeeping For Your Business:
Loss of absolute Control:
Some businesses believe that it is easier to communicate and work with an internal bookkeeping and accounting team, vis-a-vis the one that is outsourced. They believe that one loses control over how their accounting operations are handled. Although it might seem a plausible scenario, the truth is, any such reservation can be easily dealt with and sorted, with proper initial dialogue and contractual agreements. In reality, an outsourced bookkeeper is available to you 24×7 and works in the time and schedule that deems suitable to your business.
Hidden and Add-On Costing:
For some enterprises, outsourcing bookkeeping may sound like a cash-saving alternative to an in-house bookkeeper. But chances are that there are hidden charges and covert costing to added services. Again, what seems like a potential scenario, is in reality far from reality. The highlight of outsourcing bookkeeping is that you are able to pay only for the services that you avail for. Add to that these transparent plans are bound by contractual terms of business and thus, are not modifiable easily. So you will never be surprised with an unexpected bill and inflated rates of services, ever!
Questionable Security Standards:
The idea of outsourcing your valuable financials and business’ books over the internet to a third-party is a major fear for many organizations. But, the reality is that outsourced accounting and bookkeeping firms use the highest standards of cybersecurity, protection, and encryption to safeguard you and your business from any potential threat. In fact, even internally, your books are only handled and accessed by individuals you accept to and agree for. All your records are stored on the cloud so that you have uninterrupted access to everything. As a matter of fact, there is far better security for your books and financial records with outsourced bookkeeping as opposed to in-house.
Outsourcing Bookkeeping Pros and Cons – Running a business is a dynamic activity, Every logistic and style of running a successful enterprise changes with time. But, what doesn’t change is the need to continuously evolve and include healthy changes to make your business better and in-line with the changing times. Outsourcing your bookkeeping activities is one such domain. With the lesser time involved in taking care of your books, ensuring their accuracy you can use your resources intelligently and plan your future better. With a team of thorough professionals, solid bookkeeping ethic, and complete tax compliance, you can be assured of the right team on your side!
Ever since business and trade continue to exist in the modern-day world, so do General Ledgers! Whether the mode to assemble one’s business financials was on an abacus, on paper, or in the current day world of computers; the general ledger has continued to be of importance regardless, the day and age you are in.
For every business, it is important to know the pivotal role played by a general ledger as it includes the culmination of all your financial reports and statements.
Businesses use ledgers to document the money that they are paying or are being paid to them.
What is General Ledger?
The general ledger summarizes all the information about your business. It includes all the company’s accounts and transactions and is the financial foundation of the business. The ledger is divided into 5 categories:
Therefore, the number of funds that were credited and debited to your business, get accounted for in General Ledger.
Bookkeeping Services for Small Business
What are the Different Elements of a Ledger?
Let us delve a little deeper into what are the different elements of a ledger.
- Assets: Resources that are owned by the business and that give out any value are known as assets. These resources of values can range from cash, properties, inventory, and equipment, etc.
- Liabilities: Things like taxes, employee wages, mortgages, etc. come under the category of liabilities. These include the future financial debts any business has to pay.
- Equity: This involves the difference between the assets and liabilities of a business. If the proportion of liabilities in excess to that of the assets, then that is known as a case of negative equity. An inverse situation is known as positive equity.
- Revenue: The income that a business earns through the sale of its products and services is known as revenue. These include sales, royalties, or any other earnings that a business makes.
- Expenses: When a business pays in return for services and products that are purchased are known as expenses. These include rent, travel expenses, etc.
Reasons Your Business Needs a General Ledger:
The general ledger is a culmination of all your financial reports. It is a reflection of the financial position of your business; there are many reasons as to why it is important for your business to keep a general ledger:
1. It includes the accurate financial transactions of your business.
2. It helps you balance your books by giving you a complete understanding of where you need to pay more attention.
3. Filing taxes becomes easy when all your transactions are in one place for you to work on.
4. It helps you spot unusual transactions and potential fraud easily.
5. It helps you analyze key financial statements that help you with assessing your profitability, and overall financial health promptly.
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What is the Difference Between General Ledger and General Journal:
There are many instances where the general ledger and the general journal are confused with each other. Where the former is a summarization of all the financial information of your business. The latter keeps a record of all the transactions made in the business.
The various financial transactions as they occur through the day are recorded in the general journal. In addition to that, when the financial transaction occurs and the source document for the same is generated, then it is recorded in the general ledger.
General Ledger and Double Entry Bookkeeping:
There are two branches of accounting, the single account method, and the double-entry bookkeeping method. The former works fine if your needs from your accounting activities are limited. Whereas, double-entry bookkeeping every transaction affects two accounts at the least. One that is debited and the other that is credited. The two should always be balanced, i.e. the total debit amount= the total credit amount.
A general ledger is used to summarize all the transactions that are recorded in the double-entry bookkeeping system.
The Backbone of Accounting Financials:
The general ledger is used to record all the company’s assets, liabilities, revenue, expenses, and equity, etc. These are then required to build and collate the balance sheet and income statements. All these together form the backbone of the accounting needs of any organization.
Financial logistics are taken care of when all the transactions are appropriately added to General Ledger. An updated ledger with all the transactions duly recorded is the first step to ensuring the financial health of your organization. We hope that through this blog, you are able to understand what general ledgers are, and their importance for your business.
Covid-19 has affected the social, political and economic institutions of the world. Its impact can be felt across continents. At such a time, it is important to contain the human and economic impact of the pandemic. As per the statistics, if it goes at the pace it is at, 85% of the small and medium-sized businesses will run out of cash in 2 months, and will run out of complete funds in 3 months. But as they say, all hope is not lost. A healthy business runs on thorough logistics, solid cash management and an effective planning of the future. It is a bookkeeper, who can put all these requirements together to help your business sail through during these uncertain times.
Having an effective bookkeeping strategy in place will help you to stable your cash flows, make your financial status immune, reduce business related risks and help you with future continuity plans. There are various ways, which if done correctly, can help your business in combating the economic impacts of Covid-19.
Bookkeeping Strategies to Help You in Combating Covid-19:
A bookkeeper understands the foundation on which your business is built. The combination of financial efficiency and perfect business logistics that they bring to the table can help bring your business afloat during these times. Here are some bookkeeping strategies that you can follow to mitigate your losses in the wake of Covid-19:
- Be Updated with Financial Documents:
Your financial documents will help you chart the present status and future projections of your business. You should utilize this time to draw updated and accurate statements and documents to avail tax benefits and the ongoing employer credits.
- Draw an Estimation of the Financial Impact:
With the absence of direct earnings, it is time you sit with your bookkeeper and analyse the financial projections that you can draw at this time. This will help you to reimagine your business, in these changed scenarios more efficiently.
- Re-strategize your Budget:
With the complete abruption of smooth cash flow in your business, it is time you get on the other side of the spectrum and delegate your business smartly. Rethink your budget and draft a new one keeping the current challenges and the future needs in mind. Your bookkeeper will give you the right direction to chart a budget that is realistic and achievable.
It is time you get to the basics and see how much funding you need in place to be able to sustain your business and for how long. You should ensure that your own cash is viable at all points. Which also means that you should exclude the budget for any cash ins and outs that might not be paid. Your bookkeeper will help you chart a healthy list of accounts payables.
- Employment Tax Considerations:
For all businesses with employees, there are multiple ways that you can ease the burden of funding wages and employment taxes during these times. Federal compensations, employee retention schemes and easing payroll taxes for starters, can help you during these times. Your bookkeeper can help you strategize wages, staff costs, healthcare management and leave entitlements as well as get you maximum federal benefits.
It is time that you assess and analyze all aspects of your business in terms of its financial efficiency and viability. Just like a CFO, you should see what parts of your business are favourable to your future growth, and what is a liability. Take this time to assess your financial burdens, and find the correct ways to ease them out.
- Revisit Potential Investments:
Every business will need a catapulting of capital after the pandemic ends. You can use this time to draft potential investment proposals with your bookkeeper and draw strategies to help you gain in the future. Take your time now to be a step ahead of your competitors and start your business with an added edge.
- Manage Your Accounts Receivables:
At a time when the cash flow is low there are chances that your receivables can be impacted greatly. You should strategize with your bookkeeper to make a more rigorous plan of creating a smooth channel for your receivables. So that your legitimate cash flow is not blocked and you do not face a crunch.
- Revisit Your Fixed Costs:
There are many expenses in a business that we consider fixed and important. Now, is the time to reassess what is integral and what can be a variable expense until this phase passes. Your bookkeeper can help draw that integral distinction between what expenses are important for your business at this time and what isn’t.
- Think Beyond What You Have:
This is the time to outsource and cut costs. Getting professionals who know their skills and are committed to helping you in reaching your goals should be your next step. You should choose outsourced bookkeeping and accounting advisory over having a full-fledged accounting department. Not only do you get a proactive team of experts, but you can save majorly on your expenses. Build a virtual team!
Respond to Immediate Challenges with Effective Bookkeeping
This is the time to work together, work efficiently, and benefit in unity. Your bookkeeper and effective accounting strategies can help you in mitigating Covid-19 and not just resolve its economic challenges but come out much better when all of this ends. Seeking what should be your concerns immediately and how should you manage your cash in the long-term are key concerns. With the right bookkeeping knowledge, you can draft strategies and gain maximum federal tax benefits as well.
It is time, we all come together and fight this pandemic and the challenges it brings with it, heads on!